AP Macroeconomics Unit 2 Vocab Review

Product Market

Markets where goods and services are bought and sold

Consumer Spending

Household spending on goods and services

Factor Market

Markets where resources, especially capital and labor, are bought and sold

Government Spending

Total expenditures on goods and services by federal, state, and local governments

Tax Revenue

The total amount of funds the government receives from taxes

Disposable Income

Equal to income minus taxes; the total amount of household income available to spend on consumption

Government Transfers

Payments that the government makes to individuals without expecting a good or service in return

Private Savings

Equal to disposable income minus consumer spending; this is a household’s disposable income not spent on consumption

Financial Markets

Channel private savings into investment spending and government borrowing

Government Borrowing

The amount of funds borrowed by the government in the financial markets

Investment Spending

Spending by firms on new productive physical capital, such as machinery and structures, and changes in inventories

Inventories

Stocks of goods and raw materials held to facilitate business operations

Exports

Goods and services sold to other countries

Imports

Goods and services purchased from other countries

Gross Domestic Product (GDP)

The total value of all final goods and services produced in the economy during a given year

Intermediate Goods

Goods and services bought from one firm by another firm to be used as inputs into the production of goods and services

Final Goods

Goods and services sold to the final, or end user

Employed

People currently holding a job in the economy, either part-time or full-time

Unemployed

People who are actively looking for work but aren’t currently employed

Labor Force

Equal to the sum of the employed and the unemployed

Discouraged Workers

Nonworking people who are capable of working but have given up looking for a job due to the state of the job market

Natural Rate of Unemployment

The unemployment rate that arises from the effects of frictional plus structural unemployment

Inflation

A rising overall price level

Deflation

A falling overall price level

Disinflation

The process of bringing the inflation rate down

Real Wage

The wage rate divided by the price level to adjust for inflation or deflation

Real Income

Income divided by the price level to adjust for inflation or deflation

Price Level

The measure of overall prices in the economy

Consumer Price Index

Measures the cost of the market basket of the typical urban American family

Nominal Interest Rate

The interest rate actually paid for a loan

Real Interest Rate

The nominal interest rate minus the rate of inflation

GDP Deflator

Measuring and adjusting the nominal GDP for changes in the price level over time

GDP per capita

GDP divided by the total population; it is equivalent to the average GDP per person

Economic Growth

An increase in the maximum amount of goods and services that an economy can produce

Full-Employment Output

The level of real GDP the economy can produce when all resources are fully employed

Potential Output

What an economy can produce when operating at maximum sustainable employment

Output Gap

The difference between actual output and potential output